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Quote of the Day

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

–Warren Buffett

This famous saying by Buffett not only applies to actual stock market closures, but I think it also applies for periods of time (some decades long!) where your investments remain under priced. Many investors in 1929 learned this lesson the hard way. The Dow Jones Industrial Average closed at 381.17 on September 3rd 1929 and did not revisit that high until this day, November 23rd, 1954.

November 23rd – This Day in Stock Market History

November 23rd, 1909 – Orville and Wilbur Wright go to work for the first time at their new company, the Wright Company.

The company was incorporated the day prior, and funded with $1,000,000 in start up capital.

wright_brothers_co_nyt

Source: New York Times November 23rd, 1909

Orville Wright would estimate the company built 120 airplanes during the first 5 years of the company’s operations. In 1915 Wright Company would merge with the Glenn L. Martin Company, forming the Wright-Martin Company.

November 23rd, 1954 – The Dow Jones Industrial Average closes at 382.74, the first time it has closed above 381.17 since September 3rd 1929. The stock market has finally recovered from its pre-Great Depression peak after 25 years.

This remains the longest stretch in history for the Dow to make a new high. 

djia_chart_1929_to_1954
Chart courtesy of Macrotrends

Source: The Market’s Measure

Best November 23rd in Dow Jones Industrial Average History

1907 – Up 3.65%, 1.42 points.

Worst November 23rd in Dow Jones Industrial Average History

1932 – Down 5.84%, 3.69 points.

Read of the Day

The Concept of Dollar Cost Averaging

We all have fears that another 1929-like crash is coming. From late 1929 to 1932 the U.S. stock market fell nearly 90% and as we saw above it would take nearly 25 years for an investor to recover.

But an investor in 1929 who kept their wits and actively invested during that time had a much shorter wait, in fact it turns out a major drop like we saw in 1929 was actually incredibly beneficial for a long term investor!

From the article linked above:

Consider someone in 1929 who invested $100 a month into that same stock index starting in 1929 for the next 10 years. This investor invested $100 whether the market was up 10% or down 90%. In fact, this investor would have had to have some guts to continue to buy the stock market all the way down. But it would pay off:

By 1939 this investor’s investment would have been worth more than $15,000! A gain of $5,000!

In this example, the investor would have lost money on some of their investments from early 1929, but because they still have money available to invest they are also able to buy the market at its lows!  This new investor buys every month, and ends up building a large position near the lows of the market. So a decade later when the stock market is recovering, they are in position to make a lot of money!

A disciplined, patient and persistent investor can make money even in the midst of the worst economic climate history has seen!

(The article also looks at examples of investors who dollar cost averaged through the 1999 tech bubble.)

Often we let the fear of a potential fall in the stock market prevent us from investing. “Stocks have gone up recently…I’m just going to wait until they drop before I invest” is something we have all heard or thought of ourselves. But the truth is these declines, even massive ones like that seen in the great depression can mean much less over the long term (and actually be beneficial!) for an investor who maintains discipline and continuously invests.

If a fear of a short term market loss is holding you up from investing today read this article and start a dollar cost averaging approach to your investments. You will thank yourself later.